I’m posting a little late. I was going to edit it slightly after writing it, but something else happened, so I posted it late.. T.T First of all, let me briefly tell you about the exchange rate. As the won-dollar exchange rate falls to 1,290 won, the mood of the foreign exchange market is changing significantly. There are two reasons for the won’s strength: the Fed’s change of mind, and the other is the plunge in international oil prices. If you look at the recent exchange rate chart… Similar to the rate of decline in the exchange rate, there was a sharp drop in interest rates and a sharp drop in oil prices. In fact, the Fed’s stance throughout the year and the market’s expectations for it.. And that misalignment has led to a surge in the exchange rate.

The Fed’s rate hike is over.. That’s what we’ve seen since the beginning of this year. Interest rate cuts will begin in September this year, and by the end of next year, the 200bp rate cut will push the Fed’s benchmark interest rate back to the early 3% range. That was the driving force behind pushing the dollar exchange rate to 1215 won earlier this year. However, the Fed’s stance begins to change 180 degrees as it goes from June to July this year. In June, we skipped, but in July, we actually raised interest rates. And Higher For Longer changes like a buzzword. In the foreign exchange market, which was embarrassed by the expectation of a rate cut and then a hike, we realize a surge in the dollar exchange rate. The exchange rate soared to 1,360 won. Expectations for a Pivot to Resume… This led to a sharp decline in the exchange rate again.

The stability of international oil prices has a significant impact on Korea’s trade surplus. In particular, with China’s sluggish exports and concerns over a slowdown in the semiconductor economy, oil prices rise at a time when exports are weak, and imports become stronger, which greatly increases the possibility of a trade deficit. Expectations of a turnaround in the semiconductor industry (improving exports) and confidence that the trade surplus could continue steadily in the future as oil prices plunge could create a sense of confidence in the foreign exchange market that the won’s strength could continue for some time. These two things are the driving force behind the recent appreciation of the won.

However, this objection can be raised. With this logic, Japan and China are actually not much different, right.. That’s what it means. By the way… The yen has not budged from 150 yen to the dollar, and it is true that the yuan has been strong, but it has only slightly strengthened from 7.3 yuan to 7.25 yuan to the dollar. In the end, most of the currencies were strong against the dollar, and among them, the won’s strength was more prominent. As a result, the won exchange rate exceeded 1,000 won per 100 yen in May this year, but has now fallen to 855 won per 100 yen. The won-yuan exchange rate also rose to 193 won in May and fell slightly, reaching 178 won now.

Why is the won stronger than other countries.. I think we should find the answer in the degree of mitigation. Japan is revising the YCC, but it is still continuing to make large quantitative easing on negative interest rates. China has recently shifted its stance and started to supply large amounts of liquidity. In particular, inflationary pressure is low, which can spur a certain level of stimulus. Even assuming that the Fed’s pivot will become a reality in the future… In terms of economic stimulus capacity, the size and scope of stimulus measures in Japan and China may be stronger than in Korea. One of the reasons why it is not easy for the Bank of Korea to cut its benchmark interest rate is household debt, which has soared recently. In a situation where household debt is high, it is not easy to use the Japanese-style active money release policy. Even if the Bank of Korea cuts its benchmark interest rate, it is likely to be only slightly higher than the market’s expectations. With concerns over a U.S. rate hike high, the market now seems to be looking at each country’s monetary policy stance together.. I think this contributed to a certain level of strength of the won in the short term.

So can this trend continue… The strength of the won alone is.. It comes with a significant burden. If the won is strong against the dollar and other currencies are also strong, the burden may be much less… If it’s strong… It could be a significant burden on future export growth. In particular, the excessive strength of the won against the yen is burdensome. In fact, in 2015, when the won exchange rate fell to 880 won (the weak yen), the benchmark interest rate was cut to make up the slowdown in export growth with domestic growth. For your information, the U.S. was tinkering with the key interest rate hike card at the time.

When you look at the exchange rate, you have to look at growth as well as interest rates. If there is an expectation that Korea’s sluggish export growth will become a reality, the won will also be under weak pressure. With the currencies of other countries not showing noticeable strength, the won’s strength alone.. Wouldn’t it be quite a burden.. That’s what I think. I’m going to shorten today’s essay here. I’ll greet you with a weekend essay. Thank you.